Currently there is a strong trend among individuals to use computer software applications to track and pay bills, conduct banking and other financial transactions, manage their personal finances and analyze their net worth.
Generally net worth (“NW”) is defined as an individual's assets (“A”) minus their liabilities (“L”). Assets can include cash on hand, real estate, stocks, bonds, other securities, exercisable stock options, vehicles, coin collections, stamp collections, antiques and other property of non-trivial value. Liabilities can include long-term debt such as mortgages, consumer financing debt, credit card debt, personal loans, current expenses that remain unpaid, and other non-contingent financial obligations.
When net worth is positive, an individual could in theory payoff all liabilities and be left with cash on hand to use for various purposes, such as retirement, catastrophic medical expenses, etc. When net worth is negative, the individual is in a financial hole, so to speak, and must apply future income towards liabilities to eliminate debt and build wealth.
Net worth trends are very important. Generally, an individual wishes to increase net worth both in the short term and in the long term. Building significant net worth can be a very long term process. However, in order to have a positive long-term result, the individual should focus on short term net worth trends. For example, a person who has graduated from school recently may be receiving a relatively low salary compared to monthly living expenses, leaving little money to be set aside for long-term saving or investing. However, if that recent graduate were to take a second job, or work harder in his/her primary job in order to earn quarterly or yearly bonuses, this could multiply the funds available for long-term saving and investing. Such additional funds, when viewed on a percentage basis, can create a significant positive trend in the growth of net worth. Other behaviors can have a very positive influence on net worth trends. For example, reducing unnecessary expenses such as entertainment budget, travel budget, coffee budget and restaurant budget, although perhaps not significant in absolute dollar terms, can create a significant swing in net worth trends. A short term net worth trend, if maintained over the long term, can help an individual achieve net worth goals at a much earlier date, or can allow an individual to adjust net worth goals upward.
Traditionally, net worth has been graphically represented with a pie chart or a bar graph. Referring to FIG. 1, a pie chart 101 depicts net worth as a pie 102 divided into asset 103 and liability 104 categories. This chart allows an individual to glance at the chart and immediately develop an impression of whether his/her net worth is positive or negative. Over time the individual may notice that either the asset or the liability category of the pie chart is growing, and that feedback can be used by the individual to adjust future behavior. However, changes in the pie chart must be very significant in the short term, or else observed over a very long period of time, in order to attract attention. Consequently the typical individual will view the pie chart month after month, notice no discernible change, and be unaware of any need to adjust future behaviors.
Referring to FIG. 2a, an alternative graphical representation of net worth is illustrated. A bar graph 201 is shown. The graph shows net worth in dollars (y axis) 202 versus time (x axis) 203. The time interval typically used for this type of graph was monthly or yearly. Over time the individual may or may not notice changes in the bars 204, 205, 206 which indicate changes in net worth. If an individual notices significant or unexpected changes in net worth, that could be a signal to the individual to adjust future behavior. FIGS. 2b and 2c show an alternative prior art representation of net worth and associated problems. In FIG. 2b, the theory is that net worth will be represented by bars 251, 252 and 253 in a graph 250. Each bar has an assets “A” section and a liabilities “L” section. Net worth is A−L, and is hypothetically represented by the line 254. A positive net worth will be above base line 259. In theory, the net worth line 254 will look like a heartbeat over time due to fluctuation in compensation, bonuses, inheritance, investments, unexpected expenses, recreational purchases, luxury vacations, period of unemployment, etc. However, in practice the expected representation of net worth from FIG. 2b looks like the representation shown in FIG. 2c. FIG. 2c depicts net worth bars 272, 273 and 274, each with an assets and liabilities portion. A base line 271 is zero net worth. The graph 270 does not look like a heartbeat over time, in practice. Instead, the net worth line 278 is much more of a straight line with the user unable to discern short term changes or trends in net worth. In this example, the user has a negative net worth due to an obligation such as credit card debt. Without a new career, large inheritance or lottery ticket winnings, there are not events which cause dramatic changes in net worth.
One problem with the prior art representation of net worth was that it tends to be very difficult to discern upward or downward trends in net worth. If an individual is unable to clearly discern short term net worth trends, it is impossible for the individual to attribute those net worth trends to his/her behavior (whether positive or negative). Consequently it was impossible for that individual to use a net worth graphical representation to discern which behaviors had a positive influence on net worth, which behaviors had a negative influence on net worth, and how to adjust future behavior in order to positively influence net worth.